Astra Industrial Group
Astra Industrial Group
Diversified Operations – Industrial ASTRA AB: Saudi Arabia 26 August 2014
Rating
NEUTRAL
Target price
SAR51.2 (-2.7% upside)
Current price
SAR52.6
Research Department ARC Research Team Tel 966 11 211 9332, [email protected] Key themes & implications A lacklustre performance in Q2 led us to keeping the stock “under review” till the detailed financial statements had been released. After analyzing the financials, we believe the performance was more of a temporary occurrence unlikely to recur in the long run. However, Q3 could be another muted quarter. Share information Market cap (SAR/US$)
4.055bn / 1.081bn
52-week range
40.70 - 65.88
Daily avg volume (US$)
6.54mn
Shares outstanding
74.12mn
Free float (est)
56%
Performance Absolute
1M
3M
12M
12.5%
-15.3%
17.9%
7.4%
-25.4%
-13.1%
Relative to index
Major Shareholder: Arab Supply & Trading Co.
43.8%
Mohammad N. S. Al Otaibi
8.0%
Valuation 12/12A
12/13A
12/14E
12/15E
P/E (x)
16.7
16.0
42.6
21.8
P/B (x)
2.2
2.1
2.2
2.0
EV/EBITDA (x)
20.0
21.2
31.7
16.3
Dividend Yield
3.2%
3.5%
1.6%
2.7%
Source: Company data, Al Rajhi Capital
Performance Price Close
Relative to TADAWUL FF (RHS)
68.00
135
63.00
125
58.00
115 105
48.00
95
43.00
85
38.00
75
RSI10
53.00
70 30 -10 08/13
11/13
02/14
05/14
Source: Bloomberg, Company data, Al Rajhi Capital
Company summary Established in 1988, Astra is one of the industrial heavyweights in KSA with business operations in a diverse set of segments including pharmaceuticals, steel construction and mining across six of its subsidiaries.
Astra Industrial Group Iraq situation to hit bottom line The sharp decline in Astra’s Q2 net profit came as a major surprise and prompted us to place the stock “under review” until the release of the detailed financial statements. While there were a number of reasons for the disappointing performance, the major reason for the miss was the higher costs associated with the commencement of operations at the company’s Al Anmaa steel factory. The company’s “other income”, which has been majorly volatile over the past few quarters, was another drag on the bottom-line in Q2. We have revised our estimates taking into account the latest developments. In addition, we have also adjusted our cost of equity assumption, after the government’s decision to allow foreigners to invest directly in the Saudi market. Based on our revised estimates and assumptions, we lower our target price slightly to SAR51.2 per share and maintain our Neutral rating. Weak Q2 performance unlikely to recur: Astra reported a subdued set of results in Q2 2014, as all its profit lines missed our and consensus forecasts by wide margins. Net profit came in at just SAR3.1mn (-95% y-o-y, -95.1% q-o-q), one of the worst quarters for the company in recent times. Higher operating costs dent margins: Astra reported a marginal 1.3% y-o-y increase in revenue to SAR453.3mn for Q2 2014. However, margins were dented considerably as cost of sales as well as general & administrative expenses increased sharply (as a percentage of sales). This was primarily because of commercial production start up at Al Tanmiah, as well as the scaling down of production at the factory, following the escalation of violence in Iraq. Further, a fire at the company’s Al Anmaa steel factory resulted in a halt in production. However, these events seem to be temporary phenomenon, the latter of which has already been resolved. The company had stated that it would monitor events in Iraq and scale-up production accordingly. We do not expect the situation to get resolved this year. Changes to our assumptions: The government’s recent decision to allow foreigners to invest directly in the Saudi market will lead to increased interest in the market. We had earlier assumed a 1% additional risk premium for the Saudi market due to its limited access to foreign investors. However, with this development, we have reduced this risk premium by 50bps to 0.5% due to the improved integration with global markets.
Period End (SAR)
12/11A
12/12A
12/13A
12/14E
12/15E
Revenue (mn)
1,382
1,496
1,772
1,851
2,231
Revenue Growth Gross profit margin EBITDA margin
23.3% 40.1% 15.6%
8.3% 41.3% 15.3%
18.4% 38.9% 12.6%
4.5% 35.2% 8.3%
20.5% 39.0% 13.4%
Net profit margin EPS EPS Growth
18.0% 3.35 -4.2%
16.2% 3.27 -2.2%
14.3% 3.41 4.3%
5.1% 1.28 -62.4%
8.3% 2.50 94.9%
ROE ROCE
14.3% 9.1%
13.4% 8.7%
13.5% 7.7%
5.0% 2.8%
9.6% 8.2%
Capex/Sales
16.4%
10.1%
12.7%
8.0%
6.0%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. Please note the change in our rating definitions. Our Overweight rating imply an upside of more than 10%(earlier 15%) and Underweight rating imply a downside of more than 10%(earlier 5%) from the current price. Companies with an expected variation of 10% to +10%(earlier -5% to +15%) are assigned a Neutral rating. Powered by EFA Platform 1
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Fall in steel demand to hit Q3: While operating costs escalated considerably due to commencement of production at the Al Tanmia steel plant, the top-line did not receive a corresponding boost due to a fall in demand for steel following political tensions in Iraq. On June 19, 2014, the company announced a scale down in production volumes due to declining sales volumes, while a fixed cost of SAR16mn per month would continue to be incurred. Given the current situation in Iraq, we do not expect steel output to improve this year. Consequently, the company could face a quarterly operating cost of nearly SAR50mn, which constitutes about 10% of its revenues. Overall, we anticipate another subdued Q3 performance with the Iraq situation likely to weigh on the bottom-line once again. Conclusion and Valuation: Q2 2014 was a weak quarter for Astra which posted an operating loss for the first time in the past 6 years. The political situation in Iraq could be a major determinant in Astra’s fortunes in the near future. Currently, we do not have clarity about the exact time-frame within which we can expect political concerns to ease. Given the company’s performance in Q2 and the short-term headwinds it faces, we have revised our estimates on the company. Based on our new estimates and assumptions, we have reduced our target price to SAR51.2 per share and reiterate our Neutral rating.
Risks to our rating Political situation in Iraq: The company’s return to financial health depends heavily on the political situation in Iraq. If the situation resolves sooner than we anticipate(the next 6 months or so), we could witness a surge in demand within the steel segment resulting in higher revenues, while a delay in resolving the situation would have a counter-productive effect on the company’s financial performance and our rating. “Other income” volatile but significant: Astra’s bottom-line has historically received a considerable lift from non-operating income. “Other income” contributed to nearly 20% of the company’s earnings in Q2 2013 but entered negative territory in Q2 for the time first time since 2009. We believe the high level of contribution from “other income” to the company’s profits and the volatility of the same pose a high risk for the company’s financial performance.
Major Developments Loan for expansion purposes Astra Industrial Group announced on August 6, 2014 that it has signed a loan with the Saudi British Bank (SBB) to fund its capex plans. The loan value is SAR877.5mn and is for a duration of six years.
Dividend payout continues Despite a net margin of just 0.7% in Q2 (13.8% in Q2 2013) and an operating cash outflow of SAR77mn, the company maintained its a dividend payout of SAR1.75 per share for the first half of 2014, amounting to a total of SAR129.7mn, unchanged from H1 2013. This was possible by virtue of a strong cash balance of about SAR140mn and raising debt of SAR224.1mn.
Disclosures Please refer to the important disclosures at the back of this report.
2
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Income Statement (SARmn) Revenue Cost of Goods Sold
12/11A
12/12A
12/13A
12/14E
1,382
1,496
1,772
1,851
12/15E 2,231
(1,083)
(1,200)
(1,361)
(828)
(878)
Gross Profit
554
618
689
651
Government Charges
(14)
(10)
(29)
(13)
(13)
S.G. & A. Costs
(353)
(422)
(486)
(578)
(669)
Operating EBIT
187
185
174
60
187
Cash Operating Costs
(1,167)
(1,267)
(1,549)
(1,697)
870
(1,932)
EBITDA
215
229
223
154
299
Depreciation and Amortisation
(28)
(44)
(49)
(94)
(111)
Operating Profit
187
185
174
60
187
Net financing income/(costs)
(16)
(21)
(30)
(48)
(44)
-
-
-
-
-
Net Profit Before Taxes
232
214
211
Taxes
-
-
-
Forex and Related Gains Provisions Other Income Other Expenses
Minority Interests Net profit available to shareholders Dividends
31 -
190 (4)
16
29
42
64
248
243
253
95
186
(1)
(130)
(130)
(142)
(65)
(111)
Transfer to Capital Reserve 12/11A
12/12A
12/13A
12/14E
12/15E
Adjusted Shares Out (mn)
74.12
74.12
74.12
74.12
74.12
CFPS (SAR)
3.512
3.475
3.512
1.684
4.022
EPS (SAR)
3.348
3.274
3.414
1.285
2.504
DPS (SAR)
1.750
1.750
1.912
0.876
1.502
Growth
12/11A
12/12A
12/13A
12/14E
12/15E
Revenue Growth
23.3%
8.3%
18.4%
4.5%
20.5%
Gross Profit Growth
14.3%
11.5%
11.4%
-5.4%
33.6%
6.5%
-2.7%
-30.9%
93.9%
6.5%
-0.8%
-6.1%
-65.3%
210.7%
Net Profit Growth
-4.2%
-2.2%
4.3%
-62.4%
94.9%
EPS Growth
-4.2%
-2.2%
4.3%
-62.4%
94.9%
EBITDA Growth Operating Profit Growth
Margins
12/11A
12/12A
12/13A
12/14E
12/15E
Gross profit margin
40.1%
41.3%
38.9%
35.2%
39.0%
EBITDA margin
15.6%
15.3%
12.6%
8.3%
13.4%
Operating Margin
13.5%
12.4%
9.8%
3.3%
8.4%
Pretax profit margin
16.8%
14.3%
11.9%
1.7%
8.5%
Net profit margin
18.0%
16.2%
14.3%
5.1%
8.3%
Other Ratios
12/11A
12/12A
12/13A
12/14E
12/15E
ROCE
9.1%
8.7%
7.7%
2.8%
8.2%
ROIC
13.0%
10.3%
7.5%
2.3%
6.5%
ROE
14.3%
13.4%
13.5%
5.0%
9.6%
0.0%
0.0%
0.0%
0.0%
2.0%
Capex/Sales
16.4%
10.1%
12.7%
8.0%
6.0%
Dividend Payout Ratio
52.3%
53.4%
56.0%
68.2%
60.0%
Valuation Measures
Effective Tax Rate
12/11A
12/12A
12/13A
12/14E
12/15E
P/E (x)
16.3
16.7
16.0
42.6
21.8
P/CF (x)
15.6
15.7
15.6
32.5
13.6
P/B (x)
2.3
2.2
2.1
2.2
2.0
EV/Sales (x)
3.0
3.1
2.7
2.6
2.2
EV/EBITDA (x)
19.1
20.0
21.2
31.7
16.3
EV/EBIT (x)
22.0
24.7
27.2
80.9
26.1
2.3
2.0
1.8
1.7
1.7
3.2%
3.2%
3.5%
1.6%
2.7%
EV/IC (x) Dividend Yield Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
3
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Balance Sheet (SARmn)
12/11A
12/12A
12/13A
12/14E
12/15E
Cash and Cash Equivalents
578
536
197
61
224
Current Receivables
579
797
1,011
1,055
1,227
Inventories
552
836
781
1,092
1,116
Other current assets
132
229
284
284
284
Total Current Assets
1,841
2,398
2,274
2,493
2,851
Fixed Assets
1,072
1,179
1,329
1,384
1,407
2
2
2
2
2
44
44
44
44
44
Investments Goodwill Other Intangible Assets Total Other Assets
3
4
2
1
1
-
-
-
-
-
Total Non-current Assets
1,121
1,229
1,377
1,432
1,454
Total Assets
2,962
3,627
3,651
3,924
4,305
Short Term Debt
545
1,029
945
1,095
1,245
Accounts Payable
104
172
150
204
257
Accrued Expenses
151
-
-
167
223
Dividends Payable
-
-
Other Current Liabilities
-
Total Current Liabilities
845
Long-Term Debt
-
Other LT Payables
225
Provisions Total Non-current Liabilities Minority interests
0
0
0
187
192
192
192
1,432
1,321
1,691
1,951
-
-
-
-
289
374
374
374
59
64
76
76
76
284
353
450
450
450
42
17
(30)
(94)
(93)
741
741
741
741
741
Total Reserves
1,050
1,085
1,169
1,136
1,257
Total Shareholders' Equity
1,791
1,826
1,911
1,877
1,998
Total Equity
1,833
1,842
1,881
1,783
1,905
Total Liabilities & Shareholders' Equity
2,962
3,627
3,651
3,924
4,305
12/11A
12/12A
12/13A
Paid-up share capital
Ratios
12/14E
12/15E
(33)
493
748
1,034
1,021
Net Debt/EBITDA (x)
(0.16)
2.15
3.35
6.71
3.42
Net Debt to Equity
-1.8%
26.8%
39.7%
58.0%
53.6%
Net Debt (SARmn)
EBITDA Interest Cover (x) BVPS (SAR)
Cashflow Statement (SARmn)
13.2
11.1
7.5
3.2
6.8
24.16
24.63
25.78
25.33
26.95
12/11A
12/12A
12/13A
12/14E
12/15E
232
214
211
31
190
Depreciation & Amortisation
28
44
49
94
111
Decrease in Working Capital
(213)
(505)
(244)
(135)
(86)
Other Operating Cashflow
(316)
(11)
(42)
-
Cashflow from Operations
(269)
(259)
(26)
(10)
212
Capital Expenditure
(227)
(150)
(224)
(148)
(134)
291
54
408
-
-
-
Net Income before Tax & Minority Interest
New Investments Others
(3)
(1)
Cashflow from investing activities
61
(98)
Net Operating Cashflow
(208)
Dividends paid to ordinary shareholders
(111)
Proceeds from issue of shares
-
183
(148)
(134)
(357)
157
(158)
78
(129)
(130)
(142)
(65)
-
-
-
-
Effects of Exchange Rates on Cash
(5)
(34)
(25)
-
-
Other Financing Cashflow
55
69
81
-
Cashflow from financing activities
(154)
390
(163)
Total cash generated
(362)
33
(6)
Cash at beginning of period
940
578
536
197
61
Implied cash at end of year
578
611
530
48
224
Ratios Capex/Sales Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
-
(4)
8
(150)
85 164
12/11A
12/12A
12/13A
12/14E
12/15E
16.4%
10.1%
12.7%
8.0%
6.0%
4
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Additional disclosures 1.
Explanation of Al Rajhi Capital’s rating system
Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 69 month time horizon.
2.
Definitions
"Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Jithesh Gopi, CFA Head of Research Tel : +966 11 2119332 [email protected] Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561 Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
5
Diversified Operations – Industrial ASTRA AB: Saudi Arabia 26 August 2014
Rating
NEUTRAL
Target price
SAR51.2 (-2.7% upside)
Current price
SAR52.6
Research Department ARC Research Team Tel 966 11 211 9332, [email protected] Key themes & implications A lacklustre performance in Q2 led us to keeping the stock “under review” till the detailed financial statements had been released. After analyzing the financials, we believe the performance was more of a temporary occurrence unlikely to recur in the long run. However, Q3 could be another muted quarter. Share information Market cap (SAR/US$)
4.055bn / 1.081bn
52-week range
40.70 - 65.88
Daily avg volume (US$)
6.54mn
Shares outstanding
74.12mn
Free float (est)
56%
Performance Absolute
1M
3M
12M
12.5%
-15.3%
17.9%
7.4%
-25.4%
-13.1%
Relative to index
Major Shareholder: Arab Supply & Trading Co.
43.8%
Mohammad N. S. Al Otaibi
8.0%
Valuation 12/12A
12/13A
12/14E
12/15E
P/E (x)
16.7
16.0
42.6
21.8
P/B (x)
2.2
2.1
2.2
2.0
EV/EBITDA (x)
20.0
21.2
31.7
16.3
Dividend Yield
3.2%
3.5%
1.6%
2.7%
Source: Company data, Al Rajhi Capital
Performance Price Close
Relative to TADAWUL FF (RHS)
68.00
135
63.00
125
58.00
115 105
48.00
95
43.00
85
38.00
75
RSI10
53.00
70 30 -10 08/13
11/13
02/14
05/14
Source: Bloomberg, Company data, Al Rajhi Capital
Company summary Established in 1988, Astra is one of the industrial heavyweights in KSA with business operations in a diverse set of segments including pharmaceuticals, steel construction and mining across six of its subsidiaries.
Astra Industrial Group Iraq situation to hit bottom line The sharp decline in Astra’s Q2 net profit came as a major surprise and prompted us to place the stock “under review” until the release of the detailed financial statements. While there were a number of reasons for the disappointing performance, the major reason for the miss was the higher costs associated with the commencement of operations at the company’s Al Anmaa steel factory. The company’s “other income”, which has been majorly volatile over the past few quarters, was another drag on the bottom-line in Q2. We have revised our estimates taking into account the latest developments. In addition, we have also adjusted our cost of equity assumption, after the government’s decision to allow foreigners to invest directly in the Saudi market. Based on our revised estimates and assumptions, we lower our target price slightly to SAR51.2 per share and maintain our Neutral rating. Weak Q2 performance unlikely to recur: Astra reported a subdued set of results in Q2 2014, as all its profit lines missed our and consensus forecasts by wide margins. Net profit came in at just SAR3.1mn (-95% y-o-y, -95.1% q-o-q), one of the worst quarters for the company in recent times. Higher operating costs dent margins: Astra reported a marginal 1.3% y-o-y increase in revenue to SAR453.3mn for Q2 2014. However, margins were dented considerably as cost of sales as well as general & administrative expenses increased sharply (as a percentage of sales). This was primarily because of commercial production start up at Al Tanmiah, as well as the scaling down of production at the factory, following the escalation of violence in Iraq. Further, a fire at the company’s Al Anmaa steel factory resulted in a halt in production. However, these events seem to be temporary phenomenon, the latter of which has already been resolved. The company had stated that it would monitor events in Iraq and scale-up production accordingly. We do not expect the situation to get resolved this year. Changes to our assumptions: The government’s recent decision to allow foreigners to invest directly in the Saudi market will lead to increased interest in the market. We had earlier assumed a 1% additional risk premium for the Saudi market due to its limited access to foreign investors. However, with this development, we have reduced this risk premium by 50bps to 0.5% due to the improved integration with global markets.
Period End (SAR)
12/11A
12/12A
12/13A
12/14E
12/15E
Revenue (mn)
1,382
1,496
1,772
1,851
2,231
Revenue Growth Gross profit margin EBITDA margin
23.3% 40.1% 15.6%
8.3% 41.3% 15.3%
18.4% 38.9% 12.6%
4.5% 35.2% 8.3%
20.5% 39.0% 13.4%
Net profit margin EPS EPS Growth
18.0% 3.35 -4.2%
16.2% 3.27 -2.2%
14.3% 3.41 4.3%
5.1% 1.28 -62.4%
8.3% 2.50 94.9%
ROE ROCE
14.3% 9.1%
13.4% 8.7%
13.5% 7.7%
5.0% 2.8%
9.6% 8.2%
Capex/Sales
16.4%
10.1%
12.7%
8.0%
6.0%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. Please note the change in our rating definitions. Our Overweight rating imply an upside of more than 10%(earlier 15%) and Underweight rating imply a downside of more than 10%(earlier 5%) from the current price. Companies with an expected variation of 10% to +10%(earlier -5% to +15%) are assigned a Neutral rating. Powered by EFA Platform 1
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Fall in steel demand to hit Q3: While operating costs escalated considerably due to commencement of production at the Al Tanmia steel plant, the top-line did not receive a corresponding boost due to a fall in demand for steel following political tensions in Iraq. On June 19, 2014, the company announced a scale down in production volumes due to declining sales volumes, while a fixed cost of SAR16mn per month would continue to be incurred. Given the current situation in Iraq, we do not expect steel output to improve this year. Consequently, the company could face a quarterly operating cost of nearly SAR50mn, which constitutes about 10% of its revenues. Overall, we anticipate another subdued Q3 performance with the Iraq situation likely to weigh on the bottom-line once again. Conclusion and Valuation: Q2 2014 was a weak quarter for Astra which posted an operating loss for the first time in the past 6 years. The political situation in Iraq could be a major determinant in Astra’s fortunes in the near future. Currently, we do not have clarity about the exact time-frame within which we can expect political concerns to ease. Given the company’s performance in Q2 and the short-term headwinds it faces, we have revised our estimates on the company. Based on our new estimates and assumptions, we have reduced our target price to SAR51.2 per share and reiterate our Neutral rating.
Risks to our rating Political situation in Iraq: The company’s return to financial health depends heavily on the political situation in Iraq. If the situation resolves sooner than we anticipate(the next 6 months or so), we could witness a surge in demand within the steel segment resulting in higher revenues, while a delay in resolving the situation would have a counter-productive effect on the company’s financial performance and our rating. “Other income” volatile but significant: Astra’s bottom-line has historically received a considerable lift from non-operating income. “Other income” contributed to nearly 20% of the company’s earnings in Q2 2013 but entered negative territory in Q2 for the time first time since 2009. We believe the high level of contribution from “other income” to the company’s profits and the volatility of the same pose a high risk for the company’s financial performance.
Major Developments Loan for expansion purposes Astra Industrial Group announced on August 6, 2014 that it has signed a loan with the Saudi British Bank (SBB) to fund its capex plans. The loan value is SAR877.5mn and is for a duration of six years.
Dividend payout continues Despite a net margin of just 0.7% in Q2 (13.8% in Q2 2013) and an operating cash outflow of SAR77mn, the company maintained its a dividend payout of SAR1.75 per share for the first half of 2014, amounting to a total of SAR129.7mn, unchanged from H1 2013. This was possible by virtue of a strong cash balance of about SAR140mn and raising debt of SAR224.1mn.
Disclosures Please refer to the important disclosures at the back of this report.
2
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Income Statement (SARmn) Revenue Cost of Goods Sold
12/11A
12/12A
12/13A
12/14E
1,382
1,496
1,772
1,851
12/15E 2,231
(1,083)
(1,200)
(1,361)
(828)
(878)
Gross Profit
554
618
689
651
Government Charges
(14)
(10)
(29)
(13)
(13)
S.G. & A. Costs
(353)
(422)
(486)
(578)
(669)
Operating EBIT
187
185
174
60
187
Cash Operating Costs
(1,167)
(1,267)
(1,549)
(1,697)
870
(1,932)
EBITDA
215
229
223
154
299
Depreciation and Amortisation
(28)
(44)
(49)
(94)
(111)
Operating Profit
187
185
174
60
187
Net financing income/(costs)
(16)
(21)
(30)
(48)
(44)
-
-
-
-
-
Net Profit Before Taxes
232
214
211
Taxes
-
-
-
Forex and Related Gains Provisions Other Income Other Expenses
Minority Interests Net profit available to shareholders Dividends
31 -
190 (4)
16
29
42
64
248
243
253
95
186
(1)
(130)
(130)
(142)
(65)
(111)
Transfer to Capital Reserve 12/11A
12/12A
12/13A
12/14E
12/15E
Adjusted Shares Out (mn)
74.12
74.12
74.12
74.12
74.12
CFPS (SAR)
3.512
3.475
3.512
1.684
4.022
EPS (SAR)
3.348
3.274
3.414
1.285
2.504
DPS (SAR)
1.750
1.750
1.912
0.876
1.502
Growth
12/11A
12/12A
12/13A
12/14E
12/15E
Revenue Growth
23.3%
8.3%
18.4%
4.5%
20.5%
Gross Profit Growth
14.3%
11.5%
11.4%
-5.4%
33.6%
6.5%
-2.7%
-30.9%
93.9%
6.5%
-0.8%
-6.1%
-65.3%
210.7%
Net Profit Growth
-4.2%
-2.2%
4.3%
-62.4%
94.9%
EPS Growth
-4.2%
-2.2%
4.3%
-62.4%
94.9%
EBITDA Growth Operating Profit Growth
Margins
12/11A
12/12A
12/13A
12/14E
12/15E
Gross profit margin
40.1%
41.3%
38.9%
35.2%
39.0%
EBITDA margin
15.6%
15.3%
12.6%
8.3%
13.4%
Operating Margin
13.5%
12.4%
9.8%
3.3%
8.4%
Pretax profit margin
16.8%
14.3%
11.9%
1.7%
8.5%
Net profit margin
18.0%
16.2%
14.3%
5.1%
8.3%
Other Ratios
12/11A
12/12A
12/13A
12/14E
12/15E
ROCE
9.1%
8.7%
7.7%
2.8%
8.2%
ROIC
13.0%
10.3%
7.5%
2.3%
6.5%
ROE
14.3%
13.4%
13.5%
5.0%
9.6%
0.0%
0.0%
0.0%
0.0%
2.0%
Capex/Sales
16.4%
10.1%
12.7%
8.0%
6.0%
Dividend Payout Ratio
52.3%
53.4%
56.0%
68.2%
60.0%
Valuation Measures
Effective Tax Rate
12/11A
12/12A
12/13A
12/14E
12/15E
P/E (x)
16.3
16.7
16.0
42.6
21.8
P/CF (x)
15.6
15.7
15.6
32.5
13.6
P/B (x)
2.3
2.2
2.1
2.2
2.0
EV/Sales (x)
3.0
3.1
2.7
2.6
2.2
EV/EBITDA (x)
19.1
20.0
21.2
31.7
16.3
EV/EBIT (x)
22.0
24.7
27.2
80.9
26.1
2.3
2.0
1.8
1.7
1.7
3.2%
3.2%
3.5%
1.6%
2.7%
EV/IC (x) Dividend Yield Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
3
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Balance Sheet (SARmn)
12/11A
12/12A
12/13A
12/14E
12/15E
Cash and Cash Equivalents
578
536
197
61
224
Current Receivables
579
797
1,011
1,055
1,227
Inventories
552
836
781
1,092
1,116
Other current assets
132
229
284
284
284
Total Current Assets
1,841
2,398
2,274
2,493
2,851
Fixed Assets
1,072
1,179
1,329
1,384
1,407
2
2
2
2
2
44
44
44
44
44
Investments Goodwill Other Intangible Assets Total Other Assets
3
4
2
1
1
-
-
-
-
-
Total Non-current Assets
1,121
1,229
1,377
1,432
1,454
Total Assets
2,962
3,627
3,651
3,924
4,305
Short Term Debt
545
1,029
945
1,095
1,245
Accounts Payable
104
172
150
204
257
Accrued Expenses
151
-
-
167
223
Dividends Payable
-
-
Other Current Liabilities
-
Total Current Liabilities
845
Long-Term Debt
-
Other LT Payables
225
Provisions Total Non-current Liabilities Minority interests
0
0
0
187
192
192
192
1,432
1,321
1,691
1,951
-
-
-
-
289
374
374
374
59
64
76
76
76
284
353
450
450
450
42
17
(30)
(94)
(93)
741
741
741
741
741
Total Reserves
1,050
1,085
1,169
1,136
1,257
Total Shareholders' Equity
1,791
1,826
1,911
1,877
1,998
Total Equity
1,833
1,842
1,881
1,783
1,905
Total Liabilities & Shareholders' Equity
2,962
3,627
3,651
3,924
4,305
12/11A
12/12A
12/13A
Paid-up share capital
Ratios
12/14E
12/15E
(33)
493
748
1,034
1,021
Net Debt/EBITDA (x)
(0.16)
2.15
3.35
6.71
3.42
Net Debt to Equity
-1.8%
26.8%
39.7%
58.0%
53.6%
Net Debt (SARmn)
EBITDA Interest Cover (x) BVPS (SAR)
Cashflow Statement (SARmn)
13.2
11.1
7.5
3.2
6.8
24.16
24.63
25.78
25.33
26.95
12/11A
12/12A
12/13A
12/14E
12/15E
232
214
211
31
190
Depreciation & Amortisation
28
44
49
94
111
Decrease in Working Capital
(213)
(505)
(244)
(135)
(86)
Other Operating Cashflow
(316)
(11)
(42)
-
Cashflow from Operations
(269)
(259)
(26)
(10)
212
Capital Expenditure
(227)
(150)
(224)
(148)
(134)
291
54
408
-
-
-
Net Income before Tax & Minority Interest
New Investments Others
(3)
(1)
Cashflow from investing activities
61
(98)
Net Operating Cashflow
(208)
Dividends paid to ordinary shareholders
(111)
Proceeds from issue of shares
-
183
(148)
(134)
(357)
157
(158)
78
(129)
(130)
(142)
(65)
-
-
-
-
Effects of Exchange Rates on Cash
(5)
(34)
(25)
-
-
Other Financing Cashflow
55
69
81
-
Cashflow from financing activities
(154)
390
(163)
Total cash generated
(362)
33
(6)
Cash at beginning of period
940
578
536
197
61
Implied cash at end of year
578
611
530
48
224
Ratios Capex/Sales Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
-
(4)
8
(150)
85 164
12/11A
12/12A
12/13A
12/14E
12/15E
16.4%
10.1%
12.7%
8.0%
6.0%
4
Astra Industrial Group
Diversified Operations – Industrial 26 August 2014
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Additional disclosures 1.
Explanation of Al Rajhi Capital’s rating system
Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 69 month time horizon.
2.
Definitions
"Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Jithesh Gopi, CFA Head of Research Tel : +966 11 2119332 [email protected] Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561 Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
5
